Antoine Bouët and David Laborde Debucquet
8.2 Why Do Countries Implement Export Restrictions?
Before discussing the policy justifications for export restrictions, it is noteworthy that, from a theoretical point of view, export taxes and export quotas are equivalent:
quotas could raise revenue if quota allocations are not issued for free but auctioned under competitive conditions. However, in the real world, export licenses are given to domestic producers and do not generate public revenue. Therefore, export taxes and export quotas are not equivalent in the real world.1
The first justification is the terms-of-trade argument and the desire to increase export prices. This is perhaps the most important justification from a theoretical point of view. By restricting its exports, a country that supplies a significant share of a commodity to the world market may raise the world price of that commodity.
This implies an improvement in that country’s terms of trade. The reasoning behind this argument is very similar to the optimum tariff argument, which states that, by implementing a tariff on its imports, a “large” country can significantly decrease the demand for a commodity that it imports; this therefore leads to a decrease in the commodity’s world price, which is again an improvement in the terms of trade (Bickerdike1906; Johnson1953).
When considering the final consumption of food products, the second justifi-cation is food security: export taxes reduce domestic prices. When considering a food product which is an important commodity in a country’s national consumption
1Let us mention that export quota and export taxes are also not equivalent under retaliation, that is to say if implemented during a trade war between large countries (see Rodriguez1974; Tower 1975).
structure and is also exported, by imposing an export tax, a government creates a wedge between the world price and the country’s domestic price. This can lower the final domestic consumption price by reorienting domestic supply toward the domestic market. Piermartini (2004) cited the Indonesian government as an example. The Indonesian government frequently imposes export taxes on palm oil products, in particular on palm cooking oil, as it considers cooking oil an “essential commodity” for local households. This rationale was often used by governments during the food crisis of 2006–2008 to justify implementing export taxes and other forms of export restrictions. Some examples of which are as follows: Bangladesh, Brazil, Cambodia, China, Egypt, and India implemented restrictive policies on rice and Argentina, India, and Kazakhstan on wheat. Export restrictions are anticyclical trade policy instruments: when international prices are high, local consumers are hurt by high domestic prices; implementing export restrictions decreases local prices but contributes to the rise of international prices.
The third justification takes into account the existence of intermediate consumers (firms) of the taxed products in a country. If a raw commodity is exported and is also used by the local processing industry, imposing export taxes on this primary commodity indirectly subsidizes the local processing industry by lowering the domestic price of inputs compared to the commodity’s world price, which is nondistorted. It has the same mechanism as the previous reason: export taxation gives local producers more incentive to sell their product domestically.
For example, in Indonesia, an export tax on lumber promoted the development of the domestic wood-processing industry; the development was judged to be excessive for environmental reasons as it contributed to the depletion of forests (World Bank 1998). In 1988, Pakistan imposed an export tax on raw cotton in order to stimulate the development of the yarn cotton industry. Export taxes on palm oil are imposed in Indonesia and Malaysia to support the development of downstream industries (biodiesel and cooking oil; see Amiruddin2003). According to this line of reasoning, export taxes may also be applied to a whole value chain by decreasing the level of taxation along the value chain. This is called differential export tax (DET) rates: the policy of imposing high export taxes on raw commodities and low export taxes on processed goods. This policy generates public revenues and promotes production at the later stages of a value chain. Bouët et al. (2014) studied the theoretical justification of this trade policy, and then they developed a partial equilibrium model of the global oilseed value chain and simulated the total elimination of DETs in Argentina and Indonesia and the independent removal of export taxes at various stages of production in the two countries. Their estimations showed that removing export taxes along the entire value chain in Argentina and Indonesia reduced the local biofuel production; they also point out that the DETs were implemented to raise public revenues.
The fourth justification is also a “raison d’être” for export taxes. Export taxes provide a source of revenue to developing countries that have limited capacity to rely on domestic taxation. This is a second-best argument because the imposition of lump-sum taxes is a first-best policy (Ramsey 1927; Diamond 1975). It is noteworthy that only export taxes (and not export quotas) serve this objective.
As with all trade policy, export taxes may serve the purpose of redistributing income. This is the fifth justification of this policy instrument combining different aspects from the three previous arguments. Like import tariffs, export taxes are measures that imply distribution of income. Here, this is detrimental to domestic producers of the taxed commodity but benefits domestic consumers and public revenues.
So we arrive at the first conclusion: export taxes are attractive policy instruments since they may serve different positive purposes for a government.
This is the reason why export taxes are relatively common in the current global trading system. Some studies have estimated their importance. Laborde et al. (2013) used a new detailed global data set on export taxes at the HS6 level and the MIRAGE global CGE model to assess the impact of export taxes on the world economy.
They found that the average export tax on global merchandise trade was 0.48 % in 2007, with the bulk of these taxes imposed on energy products. Moreover, the removal of these taxes would increase global welfare by 0.23 %, a larger figure than the gains projected by the Doha Round. Both developed and emerging economies, such as China and India, would gain from removing export taxes. Medium and small food-importing countries without market power (such as the least-developed countries) would also benefit from the elimination of export restrictions. The export taxes implemented by the countries in the Commonwealth of Independent States on their energy sector appear to play a critical role in the overall economic impact of the removal of these taxes. However, some countries, such as Argentina, would experience income losses.
In the next section, we focus on using food security as a justification for export taxation. We show how implementing this policy instrument is a noncooperative trade policy when food prices are high. During a food crisis, governments of food-exporting countries are tempted to alleviate high food prices by restricting exports to encourage local producers to sell food items domestically and decrease local prices.
But in doing so, these countries decrease the food supply on the world markets, causing world food prices to increase. This worsens the food crisis and is typically a “beggar-thy-neighbor” policy.
But in times of food crisis, restricting exports is not the only noncooperative trade policy. Food-importing countries are, at the same time, tempted to decrease domestic food prices by decreasing import duties. In doing so, they increase their national demand on the world market, reinforcing the upward pressure on world food prices. This is another noncooperative aspect of trade policies in periods of food crisis.
The combination of export taxes and reduced import duties increases the upward pressure on world prices when food prices are high. On the contrary, when world agricultural prices are low, food-exporting countries may be tempted to decrease export taxes and food-importing countries to increase import duties. This increases food supply and reduces food demand on world markets and therefore once again increases the downward pressure on world prices. It may appear that trade policies make world markets structurally more volatile.